ADBE Adobe Inc.
Harvest-phase software annuity: growth slowing, margins peak, stock still cheap versus cash flows.
The story
Adobe is a mature subscription compounder whose Creative Cloud and Document Cloud franchises still generate 37%+ operating margins and massive free cash flow, but revenue growth has decelerated from ~11% to ~6% as gen-AI alternatives nibble at the creative-tools moat. The moat (file formats, workflow lock-in, enterprise contracts) remains real but is no longer widening; this is a harvest-phase business returning cash, not a hypergrowth story.
Cut y1 growth from 9% to 7% because TTM growth actually printed ~6% versus the ~11% pace the prior 9% assumed — the slowdown is in the numbers, not just sentiment. Margin target, sales-to-capital, beta, and horizon stay put: TTM margin of 37.2% confirms the 37% target is already achieved, and the subscription model's reinvestment profile is unchanged. Terminal 3% sits safely below the 4.8% risk-free rate for a mature software annuity.
Value drivers
| Revenue growth (Y1) | 7.0% |
| Terminal growth | 3.0% |
| Forecast horizon | 6y |
| Target operating margin | 37.0% |
| Years to target margin | 3 |
| Sales-to-capital | 1.50 |
| Beta | 1.10 |
| Failure probability | 2.0% |
| Cost of capital (WACC) | 9.5% |
| Terminal WACC | 9.1% |
Valuation bridge
| PV of explicit FCFF | 36.14B |
| PV of terminal value | 80.29B |
| Equity value | 113.34B |
| ÷ shares → per share | $285.13 |
News
bullish +0.30 · 8 articles
- Adobe Poised for Solid Third Quarter as ARR Seen Topping Views, RBC Says
- Adobe Stock Could Be a Big Winner From AI. Here’s My 2027 Price Target
- How Wide Is the Range of Possibilities for Adobe Stock?
- The Calm Surface Of Autodesk Stock Hides A Wide-Open Year Ahead
- Adobe Stock: Citi Sees 'Achievable Set-Up' Ahead Of Q3 Earnings, Raises Price Target
- Adobe Systems (ADBE) Sees a More Significant Dip Than Broader Market: Some Facts to Know
- Citi Says Adobe Earnings May Come With a Catch
- History Says Avoid This Software Stock in September
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 26.96B | 7.0% | 37.1% | 8.17B | 1.18B | 7.00B | 6.39B |
| 2 | 28.63B | 6.2% | 37.1% | 8.66B | 1.11B | 7.55B | 6.30B |
| 3 | 30.18B | 5.4% | 37.0% | 9.12B | 1.03B | 8.08B | 6.16B |
| 4 | 31.57B | 4.6% | 37.0% | 9.54B | 925.51M | 8.61B | 5.99B |
| 5 | 32.77B | 3.8% | 37.0% | 9.90B | 799.72M | 9.10B | 5.78B |
| 6 | 33.75B | 3.0% | 37.0% | 10.19B | 655.35M | 9.54B | 5.53B |
Key risks
- AI-native competitors (Canva, open models) compress Creative Cloud pricing and net-new seat growth
- Growth deceleration persists below 5%, forcing a lower terminal value
- Enterprise spend softness hits Document Cloud ARR renewals
Catalysts
- Quarterly ARR beats with visible Firefly/AI credit monetization
- Sustained buybacks and margin expansion toward 40% funding per-share value